ally with local partners to navigate environments characterised by ambiguous or highly unpredictable systems of corruption. In addition, the interaction between arbitrariness and pervasiveness increases the likelihood of joint venture entry. Firms’ adaptations to the nature of corruption ultimately generate additional costs to companies, host governments and society. By creating conditions where firms feel forced to divest and exit once projects are completed, or take on local partners solely to protect against corruption, host governments limit the potential benefits of FDI even when they do not completely deter it. However, policy-makers should consider the versatility of multinational firms when formulating investment policies. Rather than forgoing economic opportunities because of highly corrupt environments, firms look for alternative modes to participate in such markets, for instance via short-term engagements such as turnkey projects. While international firms find ways to adapt to difficult conditions, local firms with strong ties to the domestic economy are more constrained and probably suffer the most from government corruption.
Notes 1. Klaus Uhlenbruck is in the Department of Management and Marketing at the University of Montana, United States (contact: klaus.uhlenbruck@business.umt.edu). Peter Rodriguez is at the Darden Graduate School of Business Administration at the University of Virginia, United States (contact: rodriguezp@darden.virginia.edu). Jonathan Doh is in the Department of Management at Villanova University, United States (contact: jonathan. doh@villanova.edu). Lorraine Eden is in the Department of Management at Texas A&M University, United States (contact: leden@tamu.edu). 2. For a detailed discussion of this view of the nature of corruption, see P. Rodriguez, K. Uhlenbruck and L. Eden, ‘Government Corruption and Entry Strategies of Multinationals’, Academy of Management Review (forthcoming, 2005). Also see A. Shleifer and R. Vishny, ‘Corruption’, Quarterly Journal of Economics 108 (1993). 3. See J. E. Campos, D. Lien and S. Pradhan, ‘The Impact of Corruption on Investment: Predictability Matters’, World Development 27 (1999); S.-J. Wei, Why is Corruption So Much More Taxing than Tax? Arbitrariness Kills, NBER Working Paper No. 6255 (1997). 4. The two dimensions are nearly orthogonal. Factor loadings were highly significant and reliabilities (Cronbach’s alphas) were all above 0.70.
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